Diablo 3 will sport a couple of in-game auction houses to sell items from player to player. One will be run entirely with in-game gold (very similar to the current WoW Auction House), and one will let players sell and buy items with actual money.

During a press event at its headquarters in Irvine, CA last week, Blizzard Entertainment showed off both the Diablo 3 beta and its associated Battle.net service. While most of the Battle.net features were pretty standard (there will be persistent friends lists, cross-game communication, and full matchmaking services for all of the game modes), the auction system stood out.

Yes, Diablo 3 players will be able to spend real money on in-game items, but rather than a traditional item store, Blizzard plans to create a system wherein players sell items to each other -- the eBay of Sanctuary, if you will. Players will be able to put items up for sale in each of the game's various regions around the world (with a different real-world currency for each), and other players will be able to spend real money to buy them, with the real-world money going back to the original item owners.

Blizzard will take fixed fees (as yet unrevealed, though they'll be "nominal") out of the sale price both when an auction goes up for sale and when it is actually sold. And when an item is sold, players will either be able to keep earned money in a Battle.net account for spending on Blizzard products and services, or cash out entirely, with another, percentage-based fee through a not-yet-announced third-party payment provider.

As you might imagine, Blizzard's been thinking about this one for quite a while. Vice President of Game Design Rob Pardo shared a lot of thoughts with us, including why they're going with a system like this, how it will all work, and what this means for the future of Diablo 3, Blizzard Entertainment, and the gaming market at large.%Gallery-129629%
The first question, of course, is: Why?

"Ultimately, players want it," says Pardo. Diablo 2 items are still being sold, unofficially, by third-party companies for cash, and a number of Diablo 2 players have always asked Blizzard to provide them with a secure and easy way to sell and buy items for real money.

"If Blizzard doesn't do this system, I'm not so naive to think that it's not going to happen," Pardo continues. "In the past we've really taken this hardline stance of, we will just try to stamp it down in every place that we can. And we could take that approach. But I actually think that with Diablo, it actually will end up being a good thing, at least something that players will be excited about. It really is something that a lot of players are already looking to do."

There are other reasons for Blizzard to enable such a feature. Diablo 3, says Pardo, doesn't work the same way that a game like World of Warcraft does. World of Warcraft's loot is deterministic, dependent mostly on skill, progression, and time spent playing. Diablo's loot, on the other hand, is random -- while some items are tied to some areas, there's still a random chance that a player will either get a piece of gear that fits their character or playstyle, or that they'll get a drop that won't. The game is still fully playable without ever entering the auction house (though it's notable that, like Starcraft 2, Diablo 3 will require an active Internet connection to Battle.net to play), but this market will help players find and trade that gear.

"There are some people out there that don't have the ability to put a time investment into the game, so they do want to use real-world money to kind of advance their character," says Pardo. "And the other side of it is that there are people who have a lot of time and don't benefit from it, because they'll be able to generate items, and get better items or cash it out."

And though players may compete in the game's PvP mode or race each other to the most powerful gear, Pardo says Diablo 3 is not a game meant for competition. "Even if there are people out there trying to make money or people out there spending money to get an advantage," says Pardo, "that really doesn't impact you, because it's not a competitive system." If players buy items to power themselves up, it'll be, suggests Blizzard, because players want to, not because they need to compete against anyone else.

One of the biggest arguments against bringing real money into a virtual item market is that it splits the developer's priorities. Instead of making the game fun, the argument goes, Blizzard may seek to just make more money with the auction house service. But Pardo says that's why Blizzard is charging for the service in this way, with flat auction fees at sale and purchase. "I didn't want to have an approach where on every transaction we're taking, let's say, a percentage, because if we did that, whether we liked it or not I think there'd be a perception out there that we might want to manipulate the market or behind the scenes we're inputting different items in there or whatever. But I wanted a system that, even though obviously Blizzard is going to benefit from it, it really should be player driven.

"The way we're trying to do the transactions, there's not really an obvious example of how we can design the game differently or manipulate the game that would somehow turn into more revenue on the auction house. I want to protect us or the playerbase from those possibilities. If the players don't partake in it, then it's up to them. Our job is to make a compelling game and compelling items, and we would do that anyways."

As you might imagine, this whole process raises quite a few questions of legality and finance -- Blizzard is basically going to run a virtual item marketplace that encompasses an international audience and is populated by an army of anonymous (though secure and verified) merchants and buyers. Pardo says that the fact he's telling us about the system at all means Blizzard believes it's ready to go. "What we've found," he says with a nervous chuckle, "is that no one's actually done this before. So it has been a long road to getting to where we are today, where we can actually announce we're doing this."

If there's a legal issue at all, it's likely in the "cash out" option. Blizzard is transferring some of the responsibility to the third-party provider and, in order to do that, players will need to choose, right away at time of sale, whether they want to keep the money in Battle.net, or take it out to cash with that extra percentage fee going to the third-party provider. Any money left in the system needs to stay there. Players won't be able to cash it out at any point in the future, except by buying Blizzard products and services. "We're not a bank," says Pardo. "We don't want to deal with all of those additional regulations. So that's going to be the responsibility of our third-party payment provider."

But wait -- players can get real money based on Diablo 3 drops? Isn't that gambling? "Let's just say that you're participating in real-life contests, and you won a car. And then sold it on eBay. Is that gambling?" asks Pardo. The actual sales, he says, are for specific virtual items that have already dropped, not the game itself. "It's not like I'm going to buy a chance to get a certain type of item."

Pardo also says, though the specifics on this aren't clear, that Blizzard plans to allow some free transactions to players routinely, perhaps even as often as weekly, letting them try out the system at no cost. He expects that hardcore players will jump right in, while more casual players might turn up their noses -- until they realize they can sell some items that would usually be vendored for real money. After that, he predicts, "I think there's going to be a lot of players in the game that will stay in the e-balance land. They'll sell some some of their items, maybe use that to buy some other items, maybe some other WoW stuff, and just kind of stay there. And then the people that really want to generate cash, because they have a lot of time on their hands, they'll hook up the third-party payment provider and cash out."

Given, then, that the system is something completely new, and presuming for the sake of argument that it takes off phenomenally, what does a market like this mean? (Despite Blizzard's success in the past, Pardo points out that the WoW team originally thought a million subscriptions would be the height of their achievement.)

Will Blizzard go whole hog in RMT and start offering game items through their own store? "I don't want to come out and say never say never. But at this point we have no plans of selling items to the player that would be power items." Pardo does admit cosmetic items are a possibility (and we have seen those in WoW). "But what I'd like to see happen is that it's a player-driven economy, it's not that Blizzard is throwing a bunch of stuff on there."

If this auction house turns out to be popular, other game companies may pick up this plan and run with it as far as they can. "If this ended up being extremely successful, then I do think it suddenly plays as a new business model," agrees Pardo. "And I do think it's actually potentially a very healthy one. You're much more sharing with the playerbase rather than being in that typical model of, 'You have to buy from us, and we're just trying to figure out the way to get the most dollars out of customers.' I think if it's really successful, I think that's good for us and for other games that decide to go that direction."

Undoubtedly, players will have strong responses to this idea on both sides, and once the market actually goes live (it won't be included in the beta, but is planned to be in the game at launch), even Blizzard will be surprised by what happens on the market itself. But Pardo's goal right now is just to make sure players know exactly how it all works and let players make their own decision on whether they'll use the system when the time comes.

"We're telling the fans and people who know about it," he says, "that part of the rules of this game are different. If you're a person that's really hardcore about that, that 'I will not play any game where people can use real money to get an advantage,' then at least we're being up front and honest about it.

"But I honestly do think that is just going to be fun. I think it'll be fun that you have that moment where I've been playing the game for a while and, 'I have a couple free listing fees -- you know what? Let me see if I can generate some money. Oh cool, I've got two or three bucks. I've kind of been wanting to get this shoulderpad piece I saw in the auction house...' I'm just hoping that it just makes the game more fun."